Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry

56 Pages Posted: 17 Sep 2018

See all articles by Ramin Baghai

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); Swedish House of Finance

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Ivika Jäger

Stockholm School of Economics, Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2018

Abstract

We exploit a change in regulation of money market funds to investigate how the structure of liabilities impacts financial intermediaries' asset holdings. We show that following a change in regulation, which has made prime money market funds' liabilities less money-like, safer funds exited the industry. The remaining funds have increased the riskiness of their portfolios, possibly in response to an increase in the sensitivity of flows to performance. As a result, issuers with lower risk of default have less access to funding from US money market funds. To the best of our knowledge, our paper provides the first evidence in support of theories highlighting that the characteristics of financial intermediaries' assets and liabilities are jointly determined.

Keywords: Money-ness; Liquidity; Money market funds; Risk taking; Fund exit; Regulation

JEL Classification: G1, G28

Suggested Citation

Baghai, Ramin and Giannetti, Mariassunta and Jäger, Ivika, Liability Structure and Risk-Taking: Evidence from the Money Market Fund Industry (September 2018). CEPR Discussion Paper No. DP13151. Available at SSRN: https://ssrn.com/abstract=3244527

Ramin Baghai (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Centre for Economic Policy Research (CEPR) ( email )

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Swedish House of Finance ( email )

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111 60 Stockholm
Sweden

Mariassunta Giannetti

Stockholm School of Economics ( email )

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SE-113 83 Stockholm
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

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United Kingdom

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

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111 60 Stockholm
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Ivika Jäger

Stockholm School of Economics, Swedish House of Finance ( email )

Drottninggatan 98
Stockholm, 11160
Sweden

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